Leftover Education Trust

Renee says her husband has a Michigan Education Trust. Renee's husband didn't go to college, so they can either divide it between their two kids or cash it in. What would Dave do?

QUESTION: Renee in Detroit says her husband has a Michigan Education Trust. It covers four years of college, and if they cashed it in, it would be worth $30,000. Renee’s husband didn’t go to college, so they can either divide it between their two kids or cash it in. They make $35,000 a year. They have $30,000 in debt. What would Dave do?

ANSWER: If there are no taxes and no penalties, I would take it out and pay off your student loan. Then I’d start saving for your kids’ college. You’ve got time to do that. I would not use this type of a trust to save for college.

If there is a penalty and/or there are taxes—and I honestly suspect there is for taking the money out—instead of taking a penalty and losing half your money to the government in penalties and taxes, then you would split it between your two kids and use it that way rather than give them half of it. But if there’s no penalty and/or no taxes, take it out and pay off your loans.